FOR YEARS THIS COLUMN'S BENCHMARK HAS BEEN the Morgan Stanley World Index. Folks often ask me: "Why not the S&P 500 or the Nasdaq Composite?" I would rather be asked: "How should I pick a benchmark to manage money against and to measure myself against?"

The answer starts with your time horizon. Take a 50-year-old who expects to live to 80. For 30-year periods in all developed markets, equities have always done better than bonds or cash. That fact doesn't guarantee that stocks will beat bonds over 2000-30, but it definitely means that this investor should have an all-equity benchmark.

Next, recognize that all correctly constructed major equity indexes (market-capitalization weighted) end up with almost identical 30-year returns. Investors never believe this, yet it's true whether the index is the S&P 500 (which covers U.S. large caps), the Nasdaq Composite (technology), Morgan Stanley's EAFE (for Europe, Australia and the Far East) or my preferred Morgan Stanley's World Index (the broadest one). And it is even true for country returns: Japan's, Britain's, France's or anywhere that isn't tiny. They all have average annual returns for the last 30 years within 0.75 percentage points, plus or minus, of 13.8%. Like the S&P 500 at 14.1% or Nasdaq at 13.6%.

The reason the returns cluster tightly is explained by core finance theory. No category is permanently better than another. To say otherwise is to say you either don't believe in capitalism or don't understand its pricing mechanism. Security pricing is set by supply and demand. When most investors believe a category is somehow superior, that means there is excess demand for it. Then investment bankers busily begin to create new supply in that category. Why? Because we pay them a huge chunk of the new securities' value, giving them a big incentive to create more.

Increasing the supply isn't very difficult. It's simply a matter of printing more paper, with a bit of legal work and distribution costs thrown in. The process takes time to crank up, but can be continued infinitely. And investment bankers keep cranking until they can see no more excess demand. They've created enough supply to bring pricing back into line with all other categories. Often they overshoot the mark, driving a category's pricing through the floorwhich is just what happened to tech early this year.

Hence picking a long-term benchmark isn't about getting the best returns; it's about stomaching volatility. Investors hate wild gyrations. The best benchmark is one that gets you to that 30-year future return with the smoothest ride. And that is the Morgan Stanley World, since the broadest index is the least volatile.

Sure, in the next few years one index will soar while another develops sores. So if our horizon is shorter, we must pick a benchmark by forecasting where we think returns may be. If your horizon is, say, 10 years, you may want a benchmark that lagged in the last decade and can regress back to that 30-year future average. You might now pick one like EAFE but not Nasdaq, which has seen its highs.

If your time horizon is very short, like a year, then you must pick a benchmark via simple forecasting, which is tricky (see my Apr. 3 column). With shorter time periods you also include a cash or fixed-income portion in your benchmark (see my Oct. 30 column). But for the long term, go with the Morgan Stanley World.

Some foreign stocks I like now to help you manage against that benchmark include:
Swiss-based Adecco (86, ADO, www.adecco.com) is the world's largest employment agency, spanning 5,000 offices in 60 nations. I recommended it Sept. 20, 1999 at 69. It rose to 111 and has backed off. Buy before it goes back up.Endesa (16, ELE, www.endesa.es) isn't just a power company. It has its fingers in much of Spain's growing infrastructure. Down from 30 last year with a 3% dividend yield, it is a cheap way to buy growth.
Pioneer (32, PIO, www.pioneer.co.jp) and Sanyo (41, SANYY, www.sanyo.co.jp/koho/index), large Japanese consumer electronics firms, make a great package in a portfolio.

Stock quotes are delayed at least 15 minutes for Nasdaq, at least 20 minutes for NYSE/AMEX.
U.S. indexes are delayed at least 15 minutes with the exception of Nasdaq, Dow Jones Industrial Average and S&P 500 which are 2 minutes delayed.